Pushed by Gov. Jerry Brown, lawmakers in Sacramento voted last year to scrap redevelopment as part of a budget package to balance the state’s billion-dollar fiscal crisis, while earmarking $1.7 billion of that money for schools and public safety. But what finally pulled the plug was a unanimous ruling announced late last month by the California Supreme Court, that upheld the state’s action to eliminate redevelopment agencies. City and redevelopment advocacy groups filed a suit challenging the legislature’s action in an attempt to save the RDAs. The court said no and also voted to strike a budget bill allowing RDAs to remain with less funding.

Efforts are in the works to beg for more time and come up with a new scheme in the state legislature to rescue what cities call the “one tool to revitalize neighborhoods and create jobs.” But, as time runs out, some city officials aren’t banking on any saviors and expect redevelopment to never be the same again.

“No matter the outcome of the potential legislation, it is expected that the future landscape for the delivery of needed community development-type services will be drastically different,” said Amy Bodek, executive director of the Long Beach RDA and the city’s director of development services, in a recent staff report. “The city council must now carefully review and allocate the extremely limited funding available to support housing and community improvements.”

The Long Beach City Council is expected to vote tonight, January 17, on a resolution choosing the City of Long Beach as Long Beach RDA’s successor agency, transferring all housing functions and assets over to the city, effective February 1, when RDAs are to start their winding down process.

A new bill in the state senate calls for the legislature to extend the state’s deadline to April 15 to form a new program and resolve issues. At the same time, an injunction was filed in Sacramento County Superior Court by nine cities, including Cerritos, Signal Hill and Carson, to temporarily block the legislation from going into effect. A hearing on the case is to be heard on January 27. But how much support either movement has in Sacramento is still hazy. Equally uncertain is how vast the future impacts will be once redevelopment is eliminated. The funding mechanism was created to subsidize development, such as affordable housing and commercial improvements, in an effort to remove “blight” and revitalize neighborhoods, among other purposes.

Decades Of Work

In Long Beach, redevelopment has been a springboard for neighborhood transformation for about 50 years, according to city officials. Encompassing about 40 percent of the city, Long Beach RDA has helped develop the Los Altos Shopping Center in East Long Beach, Renaissance Walk along Atlantic Avenue and The Promenade and CityPlace Shopping Center downtown, to name a few.

Redevelopment was also responsible for ridding high-crime areas of some nuisance businesses, such as liquor stores and motels, while providing for extra services such as graffiti abatement and code enforcement. The goal is transforming poor communities and business corridors, while increasing property values and sales tax revenues, through the use of property acquisitions and eminent domain. For the most part, local city officials say redevelopment was successful, converting small pockets of urban sprawl and empty lots into vibrant, revenue-generating and well-maintained communities. But critics say the system has enabled a politically connected “slush fund” that has gone far beyond its original purposes.

While future economic development now remains in question, funding from cities will likely be cut down to bare bones for the foreseeable future compared to the reservoir of “tax increment” funding collected through a portion of property taxes, city officials said.

“The loss of redevelopment is daunting,” Bodek told the Business Journal via e-mail. “The delivery of new infrastructure projects, public facilities, economic development projects and affordable housing for the benefit of the City’s residents and businesses is over . . . and the affects may linger on for years.”

Winding Down RDA

Under the state legislation, known as AB 26, the successor to RDA would be supervised by a seven-member oversight board, consisting of members appointed by the county, the mayor, the county superintendent of education, the chancellor of California Community Colleges and the Los Angeles County Sanitation District.

The main task for the oversight board would be to oversee control of RDA land assets that would then be sold off at “the highest value, regardless of best land use,” with a “fiduciary responsibility” to the taxing agents, according to city officials. All land proceeds would then be transferred to the Los Angeles County Auditor-Controller to then be split up between the various taxing agencies.

However, John Thomas, chair of the Long Beach RDA, said selling of the property that the redevelopment agency has “purchased and assembled over the years for strategic community changing projects,” would be a virtual fire sale in the current real estate climate. “If the properties are sold in this market, they will be sold at extreme loss, I’m sure,” he said. “That’s just not prudent and that’s just not good financial management.”

Meanwhile, the city is allowed an administration budget of up to 5 percent of the property tax allocated to the successor agency for fiscal year 2011-2012 and 3 percent of property tax funding allocated to the agency after that. While city staff is still determining the potential funding, staff projects the administrative budget to be “extremely limited” after carrying out required duties of the successor agency.

Although the city’s direct funding impact is being calculated, the RDA currently pays for about $6 million in services that would need to be reduced or otherwise paid for by the general fund, said Tom Modica, the city’s director of government affairs.

He said the city council would ultimately decide whether to fund the services, find a new revenue stream or eliminate the services. This will be determined in budget discussions throughout the year, he said. Also, almost 60 employee positions are fully or partially funded through RDA tax increment funding as well, and a “significant portion” of the employees are at risk of losing their jobs, Modica confirmed.

In the nearby City of Carson, the RDA pays for about $11.3 million for annual administrative funding that now may fall on the city's general fund or be reduced, according to a city staff report.

Gaping Hole To Fill

In Long Beach, the benefits of redevelopment have come in the way of unmatched services to the community, Thomas said, that may be tough to ever replace again. In the past half century that RDA has existed in Long Beach, the agency has worked with Project Area Committees, or PACs, to identify and remove “blighted lightning rods,” such as motels, liquor stores and bars that were a burden on police for calls and services, he said.

“My concern is making sure that, if the property is sold and a new private developer comes to the table, that those same businesses aren’t allowed to be reestablished to create the same problem that we just got rid of,” Thomas said.

Additionally, he said the city’s 20 percent set aside funding for senior and affordable housing has allowed residential projects that gave people “fresh starts,” partnering with the city’s non-profit agency the Long Beach Housing Development Company, which is now threatened to be closed down. “The ripple effect in Long Beach is concerning,” Thomas said. “These are incredibly uncharted waters ... Everything right now is in flux.”

RDA projects in Long Beach that are now frozen include: the $3.6 million East Police Station; the $8 million North Library; a neighborhood restaurant row at Atlantic and Artesia in North Long Beach; the Art Exchange project downtown; the American Hotel mixed-use rehabilitation downtown; the $4.2 million Pine Avenue streetscape; and various housing projects, among others.

Herb Gardner, president of the homebuilding division for developer City Ventures, said about five to six of the company’s projects are now on hold until issues pan out. City Ventures had won a request for proposals to build two residential developments in Downtown Long Beach at Pacific Avenue and 3rd Street and Elm Avenue and Broadway. But, now it’s unclear what will happen, he said. “We’re in the dark as everyone else is,” Gardner said. “We’re looking forward to at least some decisions being made so we can figure out what to do.”

Meanwhile, another concern is North and Central PAC areas, which include Bixby Knolls and an area from San Francisco Avenue to Cherry Avenue and Willow Street to 10th Street. Those areas were put on hold for many years, while others received RDA benefits. Although the blighted, dilapidated buildings have now been cleared, the vacant lots will be bought without the community or city having input other than what the property is currently zoned for, according to PAC members.

“It’s been really difficult to bring in businesses in the past and now that we’ve got interest, we can’t do anything,” said Annie Greenfeld, chair of Central PAC. “We worked really hard to get where we are now and to do all the work that we could be able to do that has not happened ... My biggest fear is the neighborhood going back to the way it was and that’s just not acceptable.”

Although with substantially less projects to work with, the PACs will likely carry on, she said. “I’m not going to give in to that. The PACs did work prior to having redevelopment money and will continue to do work.”

Lost Benefits Of RDA

An additional benefit over the years has been the city’s public art program, which essentially was the first thing to go last year. The non-profit Arts Council for Long Beach, which had been administering the city’s percent for art program, had to cancel its contract as of last November due to the loss of RDA funding, according to John Glaza, the non-profit’s interim executive director. “In light of the RDA decision, I think it’s time for all the parties to sit down and roll up our sleeves and figure out what public art is going to look like in Long Beach,” he said.

The program, which requires developers of RDA projects to contribute 1 percent toward public art, has administered a total of nearly $2.7 million in public arts projects and installations since 2009, along with maintenance of existing projects. The program also funded two cultural facilities, including The Collaborative, which features artwork and demonstrations on the ground floor of the Gallery 421 condominium complex, and The Found Theatre.

In the City of Cerritos, which formed its redevelopment agency in 1970, the RDA was essential for transforming the former “dairy town” into a bustling city with gross taxable retail sales jumping from $20 million to more than $200 million in just a four-year period. The redevelopment agency helped fund developments such as the Cerritos Center for the Performing Arts, the Cerritos Auto Square and an industrial park.

Kathy Matsumoto, Cerritos assistant city attorney, said redevelopment has “bolstered” property values and sales taxes through providing new jobs, services, maintenance and development, including providing low- and moderate-income housing, which will most likely be hard for the state to restore. “It’s hard for us to understand how the state can take this big responsibility on themselves. Because they’re going to end up with it,” she said. “How are they going to deal with everything?”

In the City of Signal Hill, redevelopment benefits have come in the form of remediation of vacant oil well sites. The RDA formed most of the city, including shopping centers and hilltop condominiums, said Ken Farfsing, Signal Hill city manager. Since 1980, the RDA has directly abandoned or participated in the abandonment of more than 90 oil wells that paved the way for a Home Depot, a Costco and recently a Fresh & Easy.

Farfsing said the impacts of the state’s decision should be felt for years to come. “Costs to develop here are higher because the sites left are the most contaminated, with abandoned oil wells that need to be re-abandoned and cleaned up,” he said. “Without having the redevelopment agency to do that, it’s probably going to retard development for some time for us.”

Unresolved Issues

While the California Supreme Court shot down the lawsuit brought by the California Redevelopment Association (CRA) and the League of California Cities, challenging the constitutionality of whether the state has a right to eliminate redevelopment, some cities say there are still several issues of legality left unresolved.

An injunction filed in superior court by nine cities currently is asking the court to grant a stay in order to block the pending RDA dissolution deadline on the grounds of a lawsuit filed last year. The lawsuit raises several constitutional challenges with AB 26 that weren’t brought up in the CRA case.

One main issue being challenged is the legality of the legislature to “invalidate loans between cities and agencies.” The stipulation means that cities that lent money for RDAs to get started, in some cases millions of dollars, would not be paid back. In Signal Hill, the city has about $8 million owed to the city’s general fund, while Long Beach is owed more than $119 million.

Jeffrey Oderman, an attorney for the Costa Mesa-based law firm Rutan & Tucker, representing the plaintiffs, said he has high hopes in taking the case to court. “Hopefully we’ll get a successful result for some 400 redevelopment agencies and their respective cities and counties,” he said.

Meanwhile, a bill called SB 659 introduced by State Sen. Alex Padilla is asking for the February deadline to be postponed in order to “develop a new job creation and renewal program, and to develop a solution that ensures that schools and the State budget receive the funding intended by the Legislature.” Proponents of the bill claim that once dissolution of redevelopment starts, it will lead to lawsuits, endless delays and ongoing conflict if not resolved.

John Casey, chief of staff for State Sen. Alan Lowenthal, said it remains unclear how much support the bill has and whether the governor would sign it. “I don’t know if there’s any will amongst the rest of the Senators ... or the governor, especially,” he said.

In reaction to the Supreme Court’s decision, Lowenthal, who voted to support the elimination of RDAs, said in a released statement: “The California Supreme Court decision should come as no surprise to anyone who has been following the case. The question that now must be answered is, ‘Can the Legislature and Local Government work together to create a new agency that does not pit the need for local economic development against school children and public safety?’ I believe that if there is a will there is a way.”

Carrying On Efforts

Assuming that redevelopment is gone, Long Beach Mayor Bob Foster said in his “State of the City” address that he felt the outlook for any attempt at the legislature rescuing redevelopment is “grim” and said the best path for the city now is to carry on RDA efforts in a new way. In all, Foster estimates the Long Beach RDA has provided for an estimated $1 billion in investment in revitalizing Long Beach over the last few decades.

The mayor also vowed to “facilitate private sector investment by aligning city departments that work on development, planning and permitting, issuing business licenses, administering small business loans and branding the city.”

City staff is recommending forming a new entity to be called the “Community Improvement Commission” that would advise the city council on community and housing services in a “new model of delivery throughout the City focusing on areas of need.” The new commission may have opportunities to tap into new funding sources, such as grants, loans and endowments, among others.